Pivoting to Circular Economy: Transforming Your Supply Chains

Team design and coaching, provided by leaders, peers, external consultants, and coaches can drive success in transforming supply chains, moving from linear to circular to meet or exceed new sustainability goals. Are you ready to harness the full potential of teams to meet the triple bottom line of Profit, People, and Planet?

New forms of leadership together with increasing pressure from key stakeholders, especially customers and investors, is driving the reinvention of organisations. On a global scale, the United Nations Sustainable Development Goals (UNSDG’s) are also gaining traction, with economic, environmental, and societal metrics now integrated within the International Standards Organisation (ISO) standards. Regulatory and non-financial reporting changes are also placing businesses under significant pressure to transform.

Joining the Circular Economy is now high on the agenda for most organisations with a report in 2020 from KPMG estimating that 80% of organizations are now reporting against the UN’s SDG’s and related sustainability measures.

What is the Circular Economy?

In a nutshell, a circular economy creates production systems that optimize resources and energy usage, and to eliminate waste and pollution. This closed loop economic model can be outlined as: –

1. Energy and resource input – Circular Economy emphasizes the use of renewable energy and recycled materials.
2. Production – efficient use of materials and energy in manufacture to eliminate waste.
3. Distribution – renewable energy sources and efficient logistical design reduce the impact on the environment.
4. Use – in designing products, extended use is focused on as opposed to planned obsolescence or contrived durability.
5. Dispose – eliminate waste generated: –
   1. Reuse – ease of repair/refurbishment to continue product use.
   2. Remanufacture – parts and/or materials returned to original production system.
   3. Recycle – at the end of the product lifecycle they are used to create materials for the production of future products not necessarily in the same production system.

The concept of a circular economy is not new. It was introduced in 1966 as ‘cyclical production’ by K.E Boulding and was rebranded as the ‘Circular Economy’ in 1988 by A.V Kneese. Despite this longevity, the circular economy has not been successfully implemented at scale. In fact, according to Ernst and Young, the global economy is still only 8.6% circular. Whilst concerning, this is perhaps unsurprising given the complexity of a circular versus a linear system of supply involving integration within, as well as, across multiple systems.

“Regulatory action is one of the drivers of the circular economy; in fact, the circular economy is a building block of the European Green Deal, which forces companies to go circular in certain areas such as packaging, batteries and repairability of products, among others.”

One of the key changes driving the circular economy has been the need for increased transparency in reporting to shareholders, customers, and regulators. This need is accelerating change in businesses, both locally and globally, to meet the challenges. Some are focusing on climate alone, however, the pressure to do more with less at a fast pace whilst addressing the sustainability agenda with effective solutions, is creating unprecedented pressure on teams and their leaders to deliver more.

What is the Circular Economy replacing?

A linear approach is easy to understand and build a business model around. It has created an underlying driver for the manufacture of single and low use products such as disposable cups and fast fashion. Not only does this increase the use of our scarce resources, but the waste from these products is not part of the producer’s system. This has become society’s problem.

Traditional production systems are linear and described as:-

1. Take – natural resources.
2. Make – manufacturing process focus on cost cutting and minimal compliance against quality standards.
3. Use – single use products and planned obsolescence to increase profitability.
4. Waste – disposal into landfill or the environment.

What changes are needed for companies to be successful in the Circular Economy?

Successful implementation of circular economy will directly impact eleven (11) of seventeen (17) of the UN’s Sustainable Development Goals with a potential indirect impact on the rest.

Anticipated impact of the circular economy on UNSDG’s

Ernst and Young also report that whilst 62% of American companies have plans to implement circularity, it’s not that easy. Full implementation of the circular economy will require a different perspective on how we do business.

Some of the challenges include: –

• Business models in the circular economy are complex and aimed at long term benefits for shareholders. This will require a paradigm shift in societies where short-term financial returns dominate organizational measures.
• The solutions to the challenges of the circular economy do not sit within the individual organization. Organizations will need to work closely with others, including competitors.
• Though motivated by societal concerns, the circular economy will still need cultural and infrastructure shifts.
• Companies do not own the full product cycle. In the linear economy each organization along the value chain will have well established simple Key Performance Indicator’s (KPI’s), which lead to specific returns. These KPI’s will change along the whole value chain.
• The remanufacture and recycling of products will reduce the strain on resource availability, however in the initial stages it will create volatility and uncertainty in the supply chain. Organizations will need agility to adapt quickly and often to ensure continuity of production.

Whilst these challenges are significant, they are not insurmountable through collaboration & strategic deployment of teams. The payoff is worthwhile for individuals, companies, and society.

Implementing effective teams and collaboration across systems for future success.

No one would argue that effective teams were not key for success in traditional or linear approaches to the delivery of supply and value chain agendas. What is different for the circular economy, is that increased complexity has introduced new and different challenges for leaders and their teams to address. Implementing the 6 Conditions for Team Effectiveness and tracking success at both team and enterprise levels is a key part of the solution.

For a circular strategy to work, all the ecosystem partners — including suppliers, manufacturing partners and governments — must commit to the process. One of the biggest obstacles is bringing all the participants of a supply or value chain together and having them act as a corporate ecosystem. Often, it’s a matter of “who goes first,” as each supplier may feel they’re in the wrong position in the chain to launch the effort. Empowering teams to design and implement organization wide, strategic intervention is the key to transcending the barriers that get in the way of effective collaboration, and to drive the solutions that work. This is where leaders and their teams need to embrace the challenge and make it happen.